Whether representational services are leviable to service tax under Management Consultancy Services?

PJ/Case law/2012-13-1548

Case:-B.S.R. & CO. VSCOMMISSIONER OF SERVICE TAX, GURGAON

Citation:- 2013 (30) S.T.R. 242 (Tri. - Del.)

Issue:- Whether representational services are leviable to service tax under Management Consultancy Services?

Brief Facts:- The appellants are engaged inthe business of providing services in the capacity of a firm of Chartered Accountants. The services provided by the appellants inter alia, entails work relating to compliance with tax laws, such as tax computation, filing of returns, services relating to representation of clients before various government authorities etc. The appellants have been registered with service tax authorities for providing taxable service under the head for Chartered Accountant’s Services and have been duly discharging its service tax liability on services taxable under that head. However, the appellant was not paying service tax on fees charged for services rendered for complying with different types of laws in the country and also on representational services. Revenue was of the view that the appellant should have paid service tax for consideration received for such activities under the entry of Management Consultant Service made taxable under Section 65(105)(r) read with Section 65(65) of Finance Act, 1994. Accordingly, a Show Cause Notice was issued demanding service tax on services rendered for the period 1-4-2007 to 31-3-2008. After adjudication a demand is confirmed against the appellant along with interest and penalty. Thereafter, appellant filed appeal before Commissioner (Appeal) but Appellate authority also upheld the order of adjudicating authority. Aggrieved by the order-in-appeal appellant filed preferred an appeal before tribunal.

Appellant’s Contention:- The appellant submits that the definition of "Management or Business Consultancy Service" at Section 65(65) of Finance Act, 1994 will cover only services in the nature of a consultancy or advisory services and not every item of work got done by the management employing another agency. The appellant further points out that this view that compliance related work will not be covered by Management Consultant's Service was advised by Director General of Service Tax vide letter No. V/DGST/21-26MC/9/99, dated 28-1-99 and further reiterated in letter F.No. 341/21/99-TRU, dated 20-8-99 issued by the TRU. Further the counsel points out that this matter came up for decision before the Tribunal in the case of M/s. Ernst & Young Pvt. Ltd. v. CST, New Delhi in Service Tax Appeal No. 320/2008 and the case was decided by the Bench by F.O. No. ST/A /429/2012-Cus., dated 5-6-2012 [2012 (27) S.T.R. 462 (Tribunal)] holding that the impugned services will not be covered by the definition of Management Consultancy Service. Further the appellant argues that out of the total demand the major work is attributable to representational work which is classifiable under 'Chartered Accountant's Service' and exempted under Notification No. 25/2006-S.T. The appellant is not contesting an amount which they have already deposited along with interest.

Respondent’s Contention:- The respondentsubmits that the work for tax compliance is in the nature of advice and consultancy and would be appropriately covered by the definition of 'Management Consultancy Service'. He also argues that any service directly or indirectly connected with Management will be covered by the definition at Section 65(65) of Finance Act, 1994.

Reasoning of Judgment:- The Tribunal heard both the parties and finds that there is noreason why representational work should be exempted from tax under Notification No.25 /2006-S.T. should be classified under Management Consultant Service and taxed. Though this issue was raised both before the adjudicating authority and the first appellate authority, both the authorities chose to ignore the contention and went by the argument that such services are classifiable under Management or Business Consultancy Service.

The Tribunal has been holding that only services in the nature of providing consultancy or advices for improving the Management of a business entity only will be covered by the definition and not executory type of responsibilities of management got done through another agency. For example collection of bad debts is a responsibility of a Management. If somebody is engaged for collecting bad debts the person engaged cannot be considered to be providing Management or Business Consultancy Services. Though the definition at Section 65(65) includes any service in connection with management of any organization, the scope of the definition gets restricted to services in relation to consultancy as is evident from the name given to the service and commercial understanding of the expression "Management or Business Consultancy."

In the case of Services for complying with the laws of the country it has been specifically ruled in the case of Ernest and Young (supra) that the service cannot be covered by definition at Section 65(65), because such services are executor in nature and not in the nature of consultancy or advice.

Hence the Tribunal decided to set aside the impugned order except to the extent of demand and interest thereon which is not contested by the appellant. The Tribunal is satisfied that short-payment arose because of clerical errors. So no penalty is being imposed in the matter.

Decision:- Appeal is allowed in above terms

Comment:- The crux of this case is that services provided for complying with the laws of the country cannot be covered by “Management or Business Consultancy Service” as such services are executory in nature and are not in the nature of consultancy or advice. Hence, representational work is not covered under the levy of service tax.

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PJ/Case law/2012-13-1548

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